De Novo Bank Exit
25 Pages Posted: 24 Apr 2002
Date Written: January 2002
Newly chartered banks provide an additional credit source for small businesses, but the staying power of new banks can be weak. A multi-state exit model is estimated for U.S. commercial banks chartered between 1980 and 1985, and for a benchmark sample of small established banks. The determinants of failure are similar for both samples, but new bank failure is more sensitive to adverse environmental conditions. The timing of new bank exit-by-failure follows a life-cycle pattern, but the timing of new bank exit-by- acquisition does not. There is mixed evidence on the effectiveness of regulations aimed at reducing new bank fragility.
Keywords: De novo banks, Market entry, Market exit
JEL Classification: G2, L1
Suggested Citation: Suggested Citation